Tag Archives: saving

Japan Adjusts

My preceding blog-post discussed the process whereby the undervalued renminbi and large Chinese trade surplus have begun to adjust in earnest, over the last three years.

The adjustment in the Chinese trade balance is reminiscent of Japan with a 30-year lag, like other aspects of the US-China relationshkp (though not all). Japan’s balance of trade in goods and services went into deficit in 2011, for the first time since 1980. Special factors have played a role in the last year, including high oil prices and the effects of the tsunami in March 2011. But the downward trend in the trade balance is clear. Even the current account temporarily showed a deficit in January. (Because Japan has long been the world’s largest creditor, a large surplus in investment income is usually enough to change any trade deficit into a surplus on the overall current account.) read more

Americans save their tax cuts => Federal spending gives more bang-for-buck stimulus.

Personal saving rose again in the second quarter. “Does this mean the stimulus tax cut has failed, as the 2008 tax cut stimulus did?”, asks The National Journal.

My answer:

Martin Feldstein and others predicted that the tax-cut component of the 2009 fiscal stimulus package would have substantially less expansionary bang-for-the-buck than the spending component of the package, because much of the tax cut would be saved, as had been the case with the 2008 tax cut. (“Bang for the buck” in this case could be defined as demand stimulus divided by budget cost.) We knew this from Milton Friedman’s permanent income hypothesis, or even from good old Keynesian multiplier theory. read more

A Return to Saving?

“Is the recent Return to Saving temporary or permanent?” asks the National Journal .

The famous Paradox of Thrift holds now more than ever: what is good for the individual, and for the economy in the long run — high saving — is bad for the economy in the short run. During the current worst-post-30s recession we need a boost to demand. In the longer run we need more saving.

Americans could not have gotten the timing worse. During the three expansions of 1983-2007 the economy grew well, and by the end of the period the first baby boomers had reached their peak earning years. Yet households’ saving rates declined, falling almost to zero in 2005-07. Meanwhile, the government ran record deficits, reducing national saving even more (in the 1980s and 2000s; the late 1990s saw surpluses). It is ironic that the pro-capital orientation to the Reagan tax cuts of 1981-83 and the Bush tax cuts of 2001-03 was largely sold as an incentive to increase saving and investment, and yet household saving fell sharply subsequent to both policy changes — to say nothing of national saving. The increase in the after-tax return to saving did not lead to a “return to saving.” read more

Jeffrey Frankel's Blog

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Tag Archives: saving

Japan Adjusts

Americans save their tax cuts => Federal spending gives more bang-for-buck stimulus.

A Return to Saving?